CNN NEWSROOM

NEWSROOM for April 18, 2001

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. (AUDIO GAP)

RUDI BAKHTIAR, CO-HOST: Then in our "Business Desk," young investors, why inexperienced players on Wall Street are feeling the wrath of a bear market.

TOM HAYNES, CO-HOST: More about money as we turn to "Worldview." Today, a profile of the man behind the U.S. Federal Reserve.

BAKHTIAR And finally in "Chronicle," U.S. government code makers, a closer look at the key protecting national security people.

HAYNES: But first today, 40 years after the Bay of Pigs invasion, Cuban President Fidel Castro reaffirms his commitment to socialism. Tens of thousands of people gathered in Havana Monday to hear Mr. Castro speak about the achievements his government his made.

We'll have more on the Bay of Pigs invasion in just a minute. First, here's some background on the island nation.

The socialist republic of Cuba is located about 90 miles south of Florida in the Caribbean Sea. Population, last estimated in 1996, is a little more than 11 million people.

Cuban President Fidel Castro overthrew Fulgencio Batista from power in 1959. Castro molded his government after Soviet bloc countries, making Cuba the first socialist state in the Americas.

Relations between the United States and Cuba became increasingly tense in the early 1960s. The installation of Soviet missiles in Cuba in 1962 brought the U.S. to the brink of war with the Soviet Union. In what became known as the Cuban missile crisis, the U.S. set up a military blockade around Cuba, and eventually the missiles were removed.

Castro, now 75 years old, still rules Cuba. He's outlasted nine U.S. presidents, despite several attempts to overthrow his government, the most famous of which was the Bay of Pigs invasion on April 17, 1961.

A major celebration is planned Thursday in Cuba to commemorate the Cuban government's victory at the Bay of Pigs. The invasion turned out to be a disastrous attempt to overthrow President Fidel Castro's government. And it became a major policy debacle for the young Kennedy administration.

Garrick Utley looks back.

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NARRATOR: The assault has begun on the dictatorship of Fidel Castro.

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GARRICK UTLEY, CNN CORRESPONDENT (voice-over): Perhaps it was doomed to failure: 1,500 Cuban exiles landing on the southern coast of Cuba to face 200,000 Cuban soldiers and militia mobilized to beat them back into the sea. The landing force had been trained at this base in Guatemala by the CIA, which expected Cubans to rise up and welcome their liberators. It didn't happen.

In Cuba, Fidel Castro called on his people to push back the invader. More than 100 members of the invasion force were killed, the rest captured.

Arthur Schlessinger Jr. was a White House aide who met with Cuban exile leaders during the invasion. He saw how President John F. Kennedy faced the disaster.

ARTHUR SCHLESSINGER JR., HISTORIAN: His immediate reaction was to blame himself for being such an idiot.

UTLEY: The invasion had been approved by President Dwight Eisenhower the year before. Kennedy worried that if he abandoned it, he would be seen as weak in standing up to communism. But in meetings with the CIA and U.S. military leaders, he drew a line.

SCHLESSINGER: Kennedy made it clear again and again in these meetings that in no case would American troops be involved. But the CIA and indeed the Cuban exiles, I think, believed that when the time came he would have no choice but to send in American troops.

UTLEY (on camera): And when the time came, Kennedy stood by his words: no U.S. troops. Nor were there air strikes to support the invading force, as its members believed they had been promised.

Forty years later, time has not healed all wounds.

(voice-over): Last month, Arthur Schlessinger Jr. and other Americans met in Havana with Cuban officials, including Fidel Castro, to talk about what happened back then when they were all much younger. There was a visit to the beach.

ALFREDO DURAN, FORMER INVASION BRIGADE MEMBER: Very emotional, very intense to be standing here and discussing some of the battle strategies and things that happened on this beach where a lot of my friends died. UTLEY: Why the invasion went so wrong for the Cuban exiles has been investigated and documented, and most of the blame placed on the CIA. It was a painful, but important lesson for President Kennedy two years later, during the nuclear missile crisis with Cuba.

SCHLESSINGER: One reason for the brilliant way he handled the missile crisis was because he had no hesitation about rejecting the recommendations of the joint chiefs and the CIA.

UTLEY: Historians have called the Bay of Pigs invasion "a perfect failure." The beach where it all happened in 1961 today is being put to other uses.

Garrick Utley, CNN.

(END VIDEOTAPE)

BAKHTIAR In an about-face, Israeli armed forces pulled out from Gaza Tuesday night. The decision to pull back reverses an overnight move to retake a one-square-mile area the Israelis gave up to the Palestinians under terms of a 1994 peace accord. Israeli officials say they acted in response to Monday night's mortar attack on an Israeli town outside Gaza.

Jerrold Kessel has more from Jerusalem.

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JERROLD KESSEL, CNN CORRESPONDENT (voice-over): Israeli troops had been busy all Tuesday, effectively changing the landscape in the small pocket of northern Gaza, which they'd retaken from Palestinian forces. But within 24 hours of their incursion, following harsh public denunciation by the United States, Israel surprisingly confirmed that the troops would be withdrawn. Their mission there, the Israeli army had said, was to prevent Palestinians from again firing mortars into southern Israel.

Israel's defense minister visited the town, which had been targeted by those mortars. That, and the subsequent fierce Israeli attack on Palestinian police positions across Gaza a part of a whole new pattern emerging in the seven-month-old conflict, more and more a direct confrontation between the Israeli military and the Palestinian Authority.

Israel accuses that major forces at the PA are directly responsible for the escalating attacks.

UZI LANDAU, ISRAELI CABINET MINISTER: I wish to negotiate and to make concessions. This has been interpreted as weakness. We say to Arafat and his associates and Saddam Hussein, Assad of Syria, the ayatollahs of Iran that we wish to have peace. But we will show determination and resolve, and we will fight back those who are using terrorism to intimidate us.

KESSEL: Yasser Arafat returns to the West Bank for meetings with fellow Arab leaders as Palestinians say the Sharon government's objective is to undermine his Palestinian Authority.

YASSER ARAFAT, PRESIDENT, PALESTINIAN AUTHORITY (through translator): These raids are not just an escalation. They're dirty. They're trying to make our people kneel. Everyone should understand that our people are steadfast and will not kneel before these gangs who are attacking our people, our villages, refugee camps, and cities.

KESSEL: A second feature of this new phase, both Israelis and Palestinians view the other side's actions as restrained.

(on camera): Deepening the belief on both sides that they have no partner on the other side with whom to conclude any sort of agreement, even a limited agreement about controlling the confrontation.

(voice-over): With the battles escalating, Palestinians and Israelis are both now lining up more and more emphatically behind their respective leaderships.

GHASSAN KHATIB, PALESTINIAN POLITICAL ANALYST: These Israeli aggressions and attacks and atrocities against Palestinian Authority and public is only contributing to long-term national unity and long- term Palestinian public support to the Palestinian Authority and to President Arafat.

RA'ANAN GISSIN, ISRAEL PRIME MINISTER SPOKESMAN: They have to make a reassessment of their initial view of Israel's strength, Israel's resilience, Israel's tenacity, its willingness to fight, because contrary to all their predictions, the Israeli society just grows stronger, united, and willing to stand against these acts of terror.

KESSEL: A West Bank rallies, Palestinians fly flags of other nations alongside their own amid mounting concern in the region the conflict could spread. On the Golan Heights, druses (ph) villages mark Syrian independence day, their call to end the Israeli occupation echoed by fellow Syrians across the ceasefire lines. And one speaker tells the rally it's time for Israel to be forced to retreat from all areas it occupied more than 30 years ago.

Jerrold Kessel, CNN, Jerusalem.

(END VIDEOTAPE)

HAYNES: No doubt you're familiar with that old tale about the tortoise and the hare. The hare is the speedy rabbit who stops along the way. But it was the steady tortoise who eventually wins the race.

Similarly, when it comes to money, sometimes the fastest way to get rich isn't always the shortest in the long run. There's no better example of that than the recent activity of the U.S. stock market.

Remember now, a stock is defined as an instrument that signifies an ownership position in a corporation. When you buy stock, you may own a portion of the company, but you have no guarantee the company will make money and in return provide you a return on your investment. You can actually lose your money instead. That's what some people who invested in tech stocks recently found. So the lessons learned: to get bulls and bears, think tortoises and hares. Brian Palmer reports.

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JUDY KIM, INVESTOR: Hi, mom.

BRIAN PALMER, CNN CORRESPONDENT (voice-over): Judy Kim put all the money in her retirement fund into tech stocks over a year ago. Now, she says the fund has lost 80 percent of its value.

(on camera): I mean, you don't seem that devastated.

KIM: Well, I was very devastated when I found out about it, and I've had a few days to sort of think about how I got myself into this situation, and I'm taking full responsibility for the fact that I didn't pay attention to my portfolio.

PALMER (voice-over): Kim isn't alone. Countless fledgling investors who loaded up on technology stocks during the boom are feeling the crunch. Now, they're wondering what to do.

PROF. LAWRENCE WHITE, NYU STERN SCHOOL OF BUSINESS: For anybody who has already absorbed a loss, I'm sorry, but there's no going back. Just learn your lesson, move on, diversify your portfolio. Buy and hold, don't try to time the market.

CORY JOHNSON, "INDUSTRY" MAGAZINE: I think people get confused quite often. Indeed, some of the most colorful personalities, both in print and on television, are the traders. But most of us, in fact, are investors, not traders.

PALMER: For novice investors like Kim, the lure of the tech sector was impossible to resist.

KIM: I think I had the impression that the economy was booming, that technology was a failsafe sector of the economy, that I couldn't go wrong.

PALMER: Even professional stock traders made bad calls on tech stocks, but most held portfolios diversified with less volatile stocks, limiting their losses. Kim says she's not through with the stock market. She says she'll diversify her portfolio and pay closer attention to the financial press. But she's still not ready to follow her parents' example.

KIM: My parents have kept every single dollar they've ever made in a savings account about, you know, 1.5 percent interest, 3 percent interest, and I've always thought that was, you know, a really bad strategy. But you know what? They have kept every single penny they have ever made, which is a lot more than I can say for myself.

PALMER: Brian Palmer, CNN, New York.

(END VIDEOTAPE)

BAKHTIAR Money matters takes a spotlight in "Worldview." And if it's true that money makes the world go around, well one man is giving the globe quite a spin. We've profiled the chairman of the Federal Reserve as we head to the United States.

HAYNES: The Federal Reserve is the central bank of the United States. It was created by the U.S. Congress in 1913 to regulate the flow of currency and provide the nation with a more stable economy. You could consider the Fed the bank of all banks because, among other things, it holds the reserve accounts of commercial banks.

The head of the Federal Reserve is the Fed chairman, who is appointed by the president of the United States. The current Fed chairman Alan Greenspan has served four U.S. presidents and has taken his job to a new level, as Maggie Lake reports.

UNIDENTIFIED FEMALE: Europe's main markets turned around and headed south after the Federal Reserve chairman Alan Greenspan dashed hopes of an early interest rate cut in the U.S.

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PETER VILES, CNN CORRESPONDENT: And the key question and we expect it to come early, they will ask, "Mr. Chairman, is the United States' economy in a recession?" He doesn't answer that question in his testimony. He did answer it 15 days ago, when he said, quote, "At the moment, we are not."

MAGGIE LAKE, CNN CORRESPONDENT (voice-over): When Alan Greenspan talks, the world listens. The U.S. Federal Reserve chairman has become one of the most closely followed people on the planet. Every speech and statement he makes is monitored and dissected.

Camera crews shoot him walking to work, getting married and even going to his birthday celebration. But that wasn't always the case.

UNIDENTIFIED FEMALE: Happy birthday, Mr. Greenspan.

LAKE: But that wasn't always the case.

LEN GARMENT, FORMER BAND MEMBER: I didn't know that he wasn't going to be anything else but an unemployed saxophonist in short order like me.

LAKE: Greenspan began his career as a jazz musician, attending the prestigious music academy Julliard and playing tenor saxophone with Leonard Garment with the Henry Jerome Orchestra. But his financial prowess was already surfacing.

GARMENT: Well, he took care of the income tax returns for members of the band. In fact, I think as I recall, it was about seven bucks a throw, which is pretty good, pretty good -- a very modest fee for a soon-to-be chairman of the Federal Reserve.

LAKE: In 1954, Greenspan left music to head his own consulting firm, Townsend-Greenspan with partner William Townsend. No stranger to politics, Greenspan eventually served as chair of the President's Council of Economic Advisers under President Ford.

But an even higher profile role came in 1987, when Ronald Reagan tapped him to be chairman of the Federal Reserve. He came with a good reputation, one that would be tested quickly.

On October 19, 1987, just 72 days after he started the job, the U.S. stock market crashed. The Dow Jones Industrial Average fell 20 percent in one day, wiping out close to $1 trillion in wealth. Panic swept Wall Street. The Federal Reserve responded immediately with a one-line statement that it would do what was needed to inject enough money into the system to keep the U.S. going. The move proved to be crucial.

DAVID JONES, AUBREY G. LANSTON: And he pumped in enough liquidity into the economy to meet all the needs and to take us through that crisis, and had it not been for his very rapid and very correct response, who knows what would have happened.

LAKE: The stock market recovered its pre-crash level in just 15 months and ultimately became the greatest bull market the United States had ever known.

At the same time the economy was turning in an historic performance of its own and turning traditional economics upside down, producing growth and record low unemployment without inflation and surprising even Greenspan itself.

EDDIE GEORGE, BANK OF ENGLAND GOVERNOR: At first he thought it was due to simply the production of information technology equipment. But then he saw that it was the application of that technology through the whole of the economy.

LAKE: The information technology revolution was under way, and so was the longest economic expansion in U.S. history. But things were not flowing as smoothly outside U.S. borders. From 1997 to 1998, financial trouble that started in Thailand spread through Asia and then to Russia, unleashing an unprecedented domino effect in global markets.

With large investment funds, long-term capital management neared failure and threatened to pull down blue chip investment banks around the world. Investors stopped trading all but the safest stocks and bonds. The world financial system was on the verge of unhinging.

In response to the increasing turmoil, the Fed decided to cut interest rates not once, but three times in two months, including an inter-meeting rate cut. The aggressive action under Greenspan's leadership reestablished order in the markets.

LAWRENCE SUMMERS, FMR. U.S. TREASURY SECRETARY: What's it's important of his characteristics is just very good predictive judgment for how markets will react to different steps and therefore an ability to suggest the steps that will be most constructive in producing market confidence, not just in the short run but in the long run as well.

LAKE: The global market rescue earned Lawrence Summers, then Deputy Treasury Secretary; Robert Rubin, then Treasury Secretary; and Fed chairman Alan Greenspan the title "the committee to save the world." Greenspan's reputation took on new proportions.

UNIDENTIFIED FEMALE: He holds a lot of juice, a lot of juice. I think right now Bush holds more Kool-Aid than any thing. I think Greenspan is the man.

UNIDENTIFIED MALE: He's probably one of the most important men in this whole world, I would say.

UNIDENTIFIED MALE: People in general I think are much better off than they were in the early '90s, so I think he's done a nice job with the economy.

LAKE: Web sites popped up. Cartoons, like this one from the New Yorker magazine, show Greenspan's reach. He had invaded the minds and bedrooms of average citizens -- and not just in the United States. Greenspan became central banker to the world.

ALISON COTTRELL, UBS WARBURG: Essentially, you have a very, very smart man in charge of the world's largest economy and an economy that's been performing remarkably successfully. And overseas, as in the United States, a lot of the credit for that has been put at his feet.

LAKE: But while his public popularity soared, inside Fed circles, criticism about Greenspan's strong leadership was starting to emerge. Critics said his desire for consensus alienated fellow board members and stifled healthy debate.

Alice Rivlin, the former vice chair, disagrees. She said he made board members feel that he was listening to them. ALICE RIVLIN, FMR. VICE CHAIR, FEDERAL RESERVE: We had a lot of good conversations. He doesn't take himself as seriously as other people take him. He has a good sense of humor.

LAKE: If he has a sense of humor, it's not always clear who gets the jokes. Greenspan is notorious for speaking in formal, technical language that confuses and confounds even experienced Fed watchers.

ALAN GREENSPAN, U.S. FEDERAL RESERVE CHAIRMAN: Let me put it this way. You cannot substitute an anecdote for a syllogism.

LAKE: Watching Greenspan and deciphering the meaning of his ambiguous speeches has become a national pastime, and if there was ever a doubt that the entire world was hanging on this man's words, it was resolved when Alan Greenspan made his famous irrational exuberance speech.

In December of 1996, Alan Greenspan, worried about the rising U.S. stock market, included a seemingly simply question at the end of a speech he was making in Washington.

GREENSPAN: How do we know when irrational exuberance has unduly escalated asset values?

The sell off was short lived, but the Fed's ability to move the stock market would continue to come under close scrutiny.

VINCE FARRELL, SPEARS, BENZAK, SALOMON & FARRELL: Never before have we had the volume in the stock market we have now, the volatility, the intensity. So the relationships between the two institutions have changed, and because of what's going on, what the Fed does has become even more important.

LAKE: Maybe too important. The day after the Fed's surprise rate cut two months ago, one newspaper portrayed him as Superman, and many, including the chairman himself, worry that too much faith is being placed in one individual.

RIVLIN: If people think that Alan Greenspan personally holds some sort of key that can move the economy up and down, then they ought to think again. That's not realistic.

FARRELL: The deification is not of Greenspan's choosing. If we choose to sit there and say, "Ooh, ooh, ooh, here's our God," that's our mistake.

LAKE: Mistake or not, investors are now depending on the Fed to put a floor under the tumbling stock market. The U.S. economy is near zero growth, and the Dow Jones Industrial Average is threatening to follow the Nasdaq and Standard & Poor's 500 Index into bear market territory. (on camera): At risk, not just the stock market and the economy, but also Greenspan's legacy. Will he be remembered as the man who presided over the longest expansion and greatest bull market in U.S. history, or the man who ended his tenure as it began: with a stock market crash?

Maggie Lake, CNN Financial News, New York.

(END VIDEOTAPE)

BAKHTIAR In "Chronicle" this week, we're taking an up-close look at one of the United States' most secret intelligence operations. The National Security Agency, or NSA, was established in 1952 to create, protect, and interpret secret codes for the U.S. military and other government agencies.

Today in part three of our special series, "The Code Breakers." David Ensor explores the high-tech wizardry of the NSA.

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DAVID ENSOR, CNN CORRESPONDENT (voice-over): At its headquarters outside Washington, the National Security Agency creates codes and secure communications systems for the U.S. government for the president on down. The NSA puts a secure telephone in every senior U.S. official's office all over the world.

(on camera): While I'm talking to you, everyone is hearing the slightly delayed, slightly compressed but clear enough voice. But if anyone tries to tap into the line they hear...

ENSOR (voice-over): But when it comes to protecting computer systems...

UNIDENTIFIED FEMALE: We are sorry, but you are not identified.

ENSOR: ... the NSA's communications guardians have their work cut out for them. Many are not secure from hackers from the American teenagers or could-be foreign agents trying to steal national security secrets.

JON ROLF, NSA ENGINEERING SPECIALIST: We see hundreds of probes, perhaps thousands on a daily basis. So it's a constant game, if you will, of moving as quickly as your potential adversary, staying current on the technologies necessary to maintain the security and integrity of the networks.

ENSOR: At the NSA's biometrics lab, scientists are testing the next generation of security tools to keep unauthorized people out of computers and top-secret areas. Fingerprint identification...

UNIDENTIFIED FEMALE: Please move forward a little.

ENSOR: ... and iris identification are likely to replace passwords.

Face identification may be the wave of future. This system is key to Recognized scientist Dave Murley.

DAVE MURLEY, NSA BIOMETRICS DIRECTOR: Boom, I'm into the system.

ENSOR: But can the system be fooled by a silicon rubber model?

(on camera): It doesn't seem to like it, Dave.

MURLEY: And that's good news, David, because we wouldn't like people to be able to use a model like this to get into our systems.

ENSOR (voice-over): The system is also key to Recognized scientist Bob Rahicka (ph).

MURLEY: The circle indicated that it found Bob's face. And now at the top of the screen you can see it has recognized Bob.

ENSOR: All well and good. But Bob has a twin brother named Doug, who also works at the NSA.

MURLEY: Let's see if the imposter can get in now.

ENSOR: Playing the role of the evil twin, Doug is rejected. The scientists say the system still isn't good enough. It has problems, for example, with new mustaches, long bangs, or a new nose ring.

ENSOR: They are also testing something that may be even better, a three-dimensional system.

UNIDENTIFIED MALE: That is incredible.

ENSOR: But so is this, the world's largest collection of supercomputers in one building used for making as well as breaking codes. This Cray Triton supercomputer alone can handle 64 billion instructions per second.

(on camera): Though some U.S. secret codes have been given by spies to adversaries like the Soviet Union, NSA officials say they know of no critical American code systems that have ever been broken.

MICHAEL JACOBS, NSA INFORMATION ASSURANCE: That said, if it were happening, you could be sure it would be one of the most closely guarded secrets of any guarded government.

Even as the agency works to make sure U.S. signals cannot be decoded, it never stops trying to gather and decipher the signals of others. David Ensor, CNN, Fort Meade, Maryland.

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HAYNES: Really fascinating and interesting to know what those guys really do.

BAKHTIAR: Yes, it sort of like they separate fact from fiction. Speaking of which, tomorrow's installment features a spy who's nothing like James Bond. This man's most use device is rather low-tech. It's his ears. Tune in tomorrow to find out why he's getting paid to listen in.

HAYNES: And that is CNN NEWSROOM for Wednesday. Thanks a lot for joining us. And we'll see you back tomorrow.

BAKHTIAR: Bye.

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